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63d Congress ) 
1st Session J 


SENATE 


j Document 
\ No. 36 


VALORIZATION OF COFFEE 


A DETAILED REPORT OF THE 
TRANSACTIONS AND FACTS RELATING 
TO THE VALORIZATION OF COFFEE 


BY 

WM. T. ('ll A NT LAND * 

o 



\ 


♦ 


PRESENTED BY MR. NORRIS 

May 16, 1913. — Ordered to be printed 

: 

- r . * ■ - 

WASHINGTON 

1913 


























/ 







D. OF O, 
MAY 23 1913 


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VALORIZATION OF COFFEE. 


Department of Justice, 

Washington , September 6 , 1911. 

Hon. J. A. Fowler, 

Assistant to the Attorney General. 

Sir: On July 11, 1911, I submitted a report on coffee valorization. 
Further consideration has only strengthened the conclusions therein 
reached. As indicated by you to me personally, I submit herewith 
a somewhat more detailed report of the transactions and facts. 

The world now consumes a million and a half bags of coffee, of 60 
kilos each, per month, or 198,000,000 pounds of coffee per month, oi¬ 
ls,000,000 bags, with a total of over two and one-third billion pounds 
of coffee per year. Of this, the United States consumes 40 per cent 
of the entire amount, or about 80,000,000 pounds per month, or 
950,000,000 pounds per year. Therefore each cent of rise in the 
price of coffee maintained throughout a year means over nine and 
one-half million dollars tax on the people of the United States. A 
6-cent rise in the price of coffee means $57,000,000 per year, or a tout 
60 cents for every man, woman, and child hi the United States. 
During valorization the price of coffee has more than doubled, and 
the rise exceeds 6 cents. 

For the coffee year from July 1, 1910, to June 30, 1911, the world’s 
crop of coffee for the first time fell far below the world’s consumption. 
It was fourteen and one-half million bags, or a shortage of three and 
one-half million bags on the world’s consumption for the year. Of 
the world’s coffee the Republic of Brazil produces from 80 to 85 per 
cent, and of the Brazilian coffee the great bulk is produced in the 
two large States of Sao Paulo and Rio. 

It will appear clearly, therefore, that anything which affects coffee 
in Brazil must immediately be felt in the United States, which con- 
sunies 40 per cent of all the world’s coffee and which buys and con¬ 
sumes from 80 to 85 per cent of the Brazilian coffee. In 1906-7 the 
world’s crop of coffee was unusually large, being estimated at about 
22,000,000 bags. The Minister of Finance of the State of Sao Paulo, 
Olavo Egydio de Sousa Aranha, conceived or stood sponsor for a 
plan as to coffee something like the once proposed populistic plan of 
making wheat the standard of value. This coffee plan has become 
known as the “ Valorization of coffee,” and the State reports, pub¬ 
lished at length on it, are spoken of as “Transactions in the defense 
of coffee. ” 

“Valorization,” as defined in the consular reports of our consul, 
means to give, by law, a fictitious or artificial value above or apart 
from the normal or ordinary market value. That the sole intent of 
the valorization plan from its conception and inception was to 
artificially enhance the price of the staple, coffee, above its natural 



4 


VALORIZATION OF COFFEE. 


or market price, there is now no longer any room for doubt, and I do 
not see that there ever should have been any real question on that 
score. What other object can either excuse or explain the attempt, 
let alone justify it? 

That the desired objects have been attained pari passu with the 
dreams of their originators is also now apparent. However, there 
are still some who profess to think that natural causes and not 
valorization are responsible for the recent rise and doubling in the 
pr ice of coffee. 

On the questions both of the intention and result of the valorization 
plan, as a plan to raise the price of coffee, let us overlook for a moment 
Minister Egydio’s naive disclaimer of any further interest on the part 
of his Government in the plan, as set forth in his cable of April 1, 1909, 
referred to later on in this report, and quote from his last official 
report relating to valorization, made to his Government under date 
of September 30, 1910, in which he says: 

There is no foundation whatsoever to the suggestion which has sometimes been 
made that the benefits which followed the Government’s (in valorization) action 
were due simply to natural causes and were not iu any way influenaed by such action. 

What happened was just the contrary, as may be verified by examining the follow¬ 
ing table, showing the figures for the crops of four years preceding and of four years 
succeeding the Government’s intervention. 

Then follow the tables and statements that show that, despite 
larger average crops and greater than anticipated following the inter¬ 
vention, the market price has steadily risen. It seems that the 
planters were able to increase their yield without increase in area 
more than had been anticipated, for a term of years at least. But 
be that as it may, the potent resulting and conclusive fact remains 
as he states it, that in spite of the fact of such increase in quantity, 
the partial corner, maintained b} 7 the State for itself, its committee 
members, and financiers, did unnaturally enhance the price just as 
set out. 

Let the editor of the Brazilian Review, who was against the plan 
to begin with, from economic reasons, as a Brazilian, offer his testi¬ 
mony as to the object and result of the plan from the South American 
standpoint. 

The action of the Sao Paulo Government in promoting valorization has been con¬ 
demned because it succeeded, against all expectations, in putting up prices and so, 
incidentally, raising the cost of coffee to consumers. 

Surprising as it may seem, this was indeed the very end and aim of its existence. 

Here again is good testimony of what the aim and result was and is. 

The law and declared policy in the United States is that value shall 
be the result only of natural market conditions of supply and demand 
and competition, and that anything which seeks to and does fix 
prices artificially at a different level is frowned upon and made illegal 
m most States by statute, and illegal by Federal statute where such 
artificially fixed prices are the direct result of some restraint upon 
interstate commerce if produced as a result of any contract or 
combination or conspiracy. Likewise, section 73 of the Wilson 
Tariff Act of August 27, 1894, which is still in force, specifically 
provides: 

That every combination, conspiracy, trust, agreement, or contract is hereby declared , 
to be contrary to public policy, illegal, and void, when the same is made by or be¬ 
tween two or more persons or corporations either of whom is engaged in importing any 
article from any foreign country into the United States, and when such combination, 
conspiracy, trust, agreement, or contract is intended to operate in restiaint of lawful 


VALORIZATION OF COFFEE. 


5 


trade, or free competition in lawful trade or commerce, or to increase the market 
price in any part of the United States of any article or articles imported or intended to 
be imported into the United States, or of any manufacture into which such imported 
aitide enters or is intended to enter. Every person who is or shall hereafter be en¬ 
gaged in the importation of goods or any commodity from any foreign country in 
violation of this section of this act, or who shall combine or conspire with another to 
violate the same, is guilty of a misdemeanor, and, on conviction thereof m any court 
of the United States such person shall be fined in a sum not less than $100 and not 
exceeding $5,000, and shall be further punished by imprisonment, in the discretion 
of the court, for a term not less than 3 months nor exceeding 12 months. 

This being the law, the quotations above set out are proof, both by 
official report and common knowledge, of its intended and actual 
violation. And this Government should not sit by supinely and see 
its people imposed on by coffee traders, financiers, and others who are 
operating to help out a foreign country in direct violation of our own 
plain statutes. 

To make effective this plan of coffee valorization it was necessary 
to have the aid of powerful financiers, and conditions demanded by 
them had to be met. As Minister Egydio puts it, in his cable of 
April 1, 1909, measure “ created by exigency (demand) of the bank¬ 
ers,” but which “the Government is negotiating with them to replace 
it by another more acceptable to the markets.” This report is only 
interested with such financiers so far as they may be citizens of the 
United States. 

At the beginning several agreements were entered into between 
the three Brazilian States of Rio, Minas Geraes, and Sao Paulo, in 
accordance with which edicts were published to make the agreements 
effective, which, contained among their provisions one for the curtail¬ 
ment and restriction by law of further coffee planting “by a suffi¬ 
ciently high tax,” while the three States should mutually agree. 
These laws are still effective, and the additional planting of coffee 
trees stopped in 1906. Naturally when the planting was stopped 
every owner of coffee trees tried to makejffiose which he had planted 
and growing produce to the utmost, and they were attended to prop¬ 
erly, with the one good result that the quality of coffee grown was prob¬ 
ably bettered. However, when the limited production thus made 
possible' had been reached, the increase in the production of coffee 
must stop. On the other hand, the world’s consumption of coffee has 
steadily increased. Thus there would come a time—and it has 
already arrived—when coffee consumption annually exceeds coffee 
production. And when such a condition of affairs arrives and con¬ 
tinues for a time, as it soon will, it is apparent that any man, or group 
of men, or financiers, who control any appreciable percentage of the 
world’s visible supply of coffee are in a position to exact any price 
they desire for what they have on hand. In other words, if such have 
not a complete corner, they have at least such power of undue 
restraint over the market and coffee trade as to be able to arbitrarily 
control and fix the price of coffee. This exact contingency was 
foreseen and calculated on in the conception of the valorization plan. 
Whether the financiers and their coffee-trading associates took any 
active steps to induce the making of these restrictive laws or not, 
the fact remains that such laws were either in existence and known 
at the time or enacted subsequently by demand of the bankers, and 
formed a part of the scheme of security by future enhancement of 
price under which the loans were made and accepted and made secure 
to the financiers. 


6 


VALORIZATION OF COFFEE. 


The loans made in the so-called defense or valorization of coffee 
were as follows: 

(1) Treasury notes of the State of Sao Paulo for £1,000,000, 
drawn August 7, 1906, for one year, and yielding net £919,000. 

(2) The first loan proper of £3,000,000," made jointly to the State 
of Sao Paulo by J. Henry Schroeder & Co., London, and the National 
City Bank, of New York, in the preliminary arrangements for which 
the National City Bank was represented by Mr. Herman Sielcken, 
as its authorized and accredited agent in London, the provisional 
contract for which was made December 8, 1906, the definitive con¬ 
tract made or signed December 14, 1906, and the contract of ratifi¬ 
cation signed February 14, 1907, for four years, on or before. 

(3) The load of £3,000,000 made by the Federal Government of 
Brazil, under contract with N. M. Rothschild & Sons, through the 
agency of Eugene J. J. Hollender, jr., January 28, 1908. 

(4) The final loan, completing the so-called valorization, in the 
sum of £15,000,000, made by the combined bankers to the State of 
Sao Paulo, and guaranteed by the Federal Government of Brazil, to 
run 10 years to January 1, 1919, and to be used, as stated in article 3 
of the law and decree announcing it, under date of August 25, 1908, 
“For the completion of the measures necessary for the defense of 
coffee, and for the conversion into a consolidated debt of the various 
temporary operations undertaken with the same object in view.’’ 

Inasmuch as the treasury or exchequer bills issued and the 
£3,000,000 Schroeder-City National Bank loan were both paid out 
of subsequent loans, so that as to that £4,000,000 they were renewals, 
it is therefore fair to say that the gross amount of funds at any time 
available under the various loans was not exceeding £18,000,000, 
less the discount and cost of floating, and the expense incurred by 
the State must therefore properly be figured on such net sum. In 
fact, the largest amount of coffee purchased by the State and on 
hand at any one time, it appears, was 8,474,623 bags, at a total 
cost of £17,227,213, based on an average cost, as shown in various 
transactions, of 7.7 cents per pound. 

According to the report of Egydio, the minister of finance, dated 
September 30, 1910, these loans have already cost the State of Sao 
Paulo in expenses and charges of various kinds, to use his own lan¬ 
guage, “difference of types of various loans (discounts), freights, 
insurances, buying and selling commissions, interest on advances, 
warehousing charges, collection and remittance fees, and other 
expenses in connection with State-owned coffee,” 156,273,158,$084, 
or over $50,000,000 gold. In other words, on a gross amount avail¬ 
able to the State of less than $90,000,000, the expense has already 
been over $50,000,000, a sum for expense so out of proportion with 
the money procured for the use of the State or its purposes that my 
fixed conviction is that the plan, to have its full real designation, 
should be called “The valorization of coffee, or the exploitation of 
a State.” 

Under the valorization plan purchase of coffee for the account of 
the government of Sao Paulo was begun August 20, 1906, through 
several banking and coffee firms, among them Crossman & Sielcken, 
of New York City, a partnership composed of George W. Crossman 
and Herman Sielcken. (Yol. 1, p. 75.) 

As to the general plan of the loans to be made and the security to 
be exacted, I am informed by Vice Consul Slechta that Mr. Frank 


VALORIZATION OF COFFEE. 


7 


II. Vanderlip was the active agent, who had prior knowledge and 
part in the transactions, representing the American bankers. 

The laws and decrees under which the purchase and control of 
coffee by the State of Sao Paulo and the coffee committee was acquired 
contain the following provisions: 

Article 6. The contracting Governments obligate themselves to create a surtax of 
3 francs, subject to increase or reduction, upon each bag of coffee exported from any 
of the (contracting) States, and also to keep in force the laws which hinder, by a suffi¬ 
ciently high tax, the increasing of the areas planted with coffee in their territories, for 
a period of two years, which may be prolonged by mutual agreement. (Agreement of 
Aug. 6, 1906, between States of Rio de Janeiro, Minas Geraes, and Sao Paulo.) 

Law No. 1127, of August 25, 1908, contains the following provi¬ 
sions : 

Article 1. Upon the coffee which leaves the State and which exceeds 9,000,000 bags 
during the current crop year, which began on the 1st July, pp., 9,500,000 bags during 
the crop year beginning July 1, 1909, and 10,000,000 bags during the following years, 
an additional tax of 20 per cent ad valorem will be collected in the manner prescribed 
by the laws in force. 

Article 2. The surtax created by article 29 of law No. 984, of the 29th December, 
1905, and which will apply to all the coffee which leaves the State, is hereby increased 
to 5 francs, or their equivalent in (Brazilian) currency, calculated at the official rate 
of exchange of the day. 

Article 3. The State Government is authorized to contract a loan immediately, 
abroad, for a maximum of fifteen million pounds sterling, the product of said loan to be 
used for the completion of the measures necessary for the defense of coffee, and for the 
conversion into a consolidated debt of the various temporary'credit operations under¬ 
taken with the same object in view. 

la. The loan to be contracted will have, in addition to the general guarantees, a 
special guarantee in the coffee which the State has acquired and still possesses, and in 
the product of the surtax referred to in the preceding article. 

2a. The product of the sales of coffees of the State, which shall take place oppor¬ 
tunely, shall be applied to the amortization of the loan contracted by virtue of the 
present authorization. (Vol. 2, pp. 3-4.) 

By decree No. 1661, of September 12, 1908, the President of the 
State of Sao Paulo published, among other things, the following regu¬ 
lations relating to said tax: 

Article 1. (The same as article 1 of the previous law—of 25th August, 1908, 
with the following additional paragraph.) The said additional tax of 20 per cent ad 
valorem shall be collected together with the export duty of 9 per cent imposed by pre¬ 
vious laws, and with the tax of 5 francs. 

Article 2. (The same as article 2 of the law of 25th August, 1908, but “upon each 
bag of 60 kilos that leaves the State.”) 

Article 3. The duties to which the present regulations apply shall be collected by 
the State customs office in Santos upon all coffees presented for shipment, the method 
of collecting being the same as up to the present. (Vol. 2, p. 5.) 

By a special contract executed in London, December 11, 1908, the 
entire conduct of the valorization scheme for the benefit of the State 
and the financiers, was intrusted to a committee of seven members, 
of which Herman Sielcken, of the firm of Crossman & Sielcken, New 
York City, who had originally represented the National City Bank as 
its authorized agent in the negotiations for the three million pounds 
loan of 1906, was and is yet the American member. 

Among the duties of the committee are those relating to the sale 
of the valorized coffee, as follows: 

Liquidate the stocks of coffee in the name and for account of the Government of 
S. Paulo, by means of public auctions or sealed proposals, viz: 500,000 bags in 1909-10, 
600,000 bags in 1910-11, 700,000 bags in 1912-13, and thereafter 700,000 bags per year. 

Beyond these minimum quantities, and at any time befoie the beginning of the 
obligatory sales, the committee may furnish to the trade such quantities as it may 


8 


VALORIZATION OF COFFEE. 


require, taking as a basis the price of 47 francs per 50 kilos for good average, and 50 
francs for Havre type superior. (Vol. 2, pp. 395-396.) 

In the agreement relative to the committee dated London Decem¬ 
ber 11, 1908, made between representatives of all the bankers haying 
to do with the loan and the Government of Sao Paulo, article 2 is as 
follows: 

A. The Government of Sao Paulo now obligates itself to offer for sale, through the 
committee, at public auctions or by sealed proposals, at the price of the day, prefer¬ 
ably during the last six months of the coffee crop, i. e., from January to June 30: 
500,000 bags in 1909-10, 600,000 bags in 1910-11, 700,000 bags in 1912-13, etc., and 
700,000 bags each following year. 

B. In consequence the Government expressly concedes to the committee full and 
irrevocable power to determine the times of sale, the minimum obligatory quantities 
above mentioned, the markets in which to sell, and to make the sales in the name of 
the Government, exercise control over the transactions, and generally to do what is 
required. 

C. Beyond and within the minimum quantities fixed by these figures, and at any 
time before the beginning of the obligatory sales, the trade may always have at its 
disposal the quantities which it requires at a price not lower than 47 francs per 50 
kilos for good average and 50 francs for Havre, type superior. The additional quantity 
may equal in each year the minimum obligatory quantity. 

D. Should this quantity not be sufficient for the needs of the trade, the committee 
shall also stipulate, in agreement with the Government, the price to be asked for the 
additional quantity. 

E. In case that, through the effect of the preceding clause, the sales should exceed 
the quantities annually provided for, the committee may postpone the later minimum 
sales if the state of the market and the statistical situation appear to warrant such 
delay, but only to the extent of the sales actually made in anticipation. 

F. All the sales shall be made by the committee in the name of the Government of 
Sao Paulo, under the rules for public auctions or sealed proposals; the notes of advice 
shall be sent to the committee, but for the State of Sao Paulo. (Vol. 2, pp. 399-400.) 

Articles 10 and 11 thereof are as follows: 

Article 10. The Government having decreed a law imposing an additional tax of 
20 per cent upon all coffees exported from the State of Sao Paulo in excess of 9,000,000 
bags during the year June 30, 1908-9, in excess of 9,500,000 bags during the year ending 
June 30, 1910, and in excess of 10,000,000 bags during any year after July 1, 1910, it 
hereby obligates itself not to revoke nor to modify this law as long as the said bonds 
are in circulation and not redeemed. 

Article 11. In addition to this the Government obligates itself to decree any new 
law that may become necessary to guarantee that the limitation of exports will be 
strictly observed. (Vol. 2, p. 402.) 

Under such restrictive agreements and legislative measures, enacted 
by the 11 exigency of the bankers,” did the committee members accept 
trusteeship or agency, and actively work to carry out the intended 
enhancement of price of that important item of import, coffee, and 
accomplish thereby under such agreements the resulting restraint 
of trade therein, into and among the several States of the United 
States, in violation both of the Sherman Antitrust Act and of section 
73 of the Wilson bill. 

In plain English, this whole thing looks like a plan devised in the 
apparent interest of Sao Paulo and Brazil, but, in fact, carried out to 
the great glory and financial profit of Baron Schroeder, the National 
City Bank, and their subsequently allied banks, and accomplished 
through the probably honest, patriotic motives and sense of Sao 
Paulo’s financial minister, Egydio Aranha, who, in his official reports, 
sets out enthusiastically how it all happened, and how they were able 
to pay loan after loan by making new loans, each one larger and each 
negotiated at a greater disadvantage, discount, and loss to the State, 
and, consequently, a resulting new and bigger profit to the eminent 
international financiers and their coffee-trade friends. 


VALORIZATION OF COFFEE. 


9 




Under this much vaunted scheme of finance, whereby the most 
ready cash or credit that was available to the borrowing State was 
not over $80,000,000 at any one time, and against which expense 
charges of all kinds in the aggregate of over $50,000,000 have already 
been collected in the way of taxes, etc., and paid out, there was still 
jutstanding and unpaid about $64,000,000 on last January 1, accord¬ 
ing to the official reports. I can not see the great cause for rejoicing 
or for hailing the master mind who conceived this expensive plan 
as the great patriot of Sao Paulo. I can see reasons for it from the 
standpoint of the financiers and the committee members who now 
seem to be juggling the supply to suit themselves and to enhance 
their fortunes. 

If there might be those who would conjure up any halos for those 
members of the committee, let me cite them to the action of the 
committee as officially reported by themselves of their meeting of 
April 27, 1909, wherein “the committee, after careful consideration 
of all interests, is of opinion that the proposed change of the law is 
desirable," which proposed the “ replacement of the existing law 
limiting the export of coffee by a new law creating an extra duty of 
10 per cent on all exports of coffee, payable in kind, such coffee to 
be destroyed under the control of the committee," and which went 
so far as to consider whether said coffee should be burned or carried 
out on shipboard and dropped into the sea. 

Speculation as to whether, without valorization, the jobbing price 
of coffee would now be higher, as some opine, is purposeless to this 
inquiry, because without valorization and attendant restrictions upon 
the areas of cultivation, the conditions as to supply can not now be 
known, but the normal guess would be that the supply would now 
be ample; that is, that the increase hi acreage of cultivation would 
have kept pace with the increase hi consumption in coffee as it does 
in most matters, instead of having ceased at reaching the limit under 
trees recently planted and their better cultivation, as reported. And 
it is not sound argument on that side to say that valorization saved 
the planters from ruin and the plantations from going into the 
hands of the bankers. It is but common experience that what goes 
into the hands of bankers is only under their greater keenness to 
have their property and plantations well and fully cared for and 
cultivated. 


Likewise, other planters would naturally have been diverted to the 
development of new plantations. We, however, have only to deal 
with the situation as it is, with the crop area restricted, the utmost 
limit of production thereon reached, and the consumption steadily 
increasing. Already have we this year reached a situation where the 
world’s production is considerably less than its consumption; and 
where the visible supply of coffee on June 8 of the present year was 
jnly 11,885,000 bags, as against a visible supply on December 1, 
1909, of 17,555,000 bags. Thus, at this moment, the surplus from 
the big 1906-7 crop has already been absorbed, and the visible supply 
is back to the average before that, when the consumption was much 
smaller than now, and when the trade proper owned all of the coffee, 
whereas now the so-called valorization committee, representing the 
international banking interests, holds surely 5,100,000 bags, and 
probably more nearly 6,000,000 bags, in its control, and the trade 
proper has only the remaining 6,000,000 bags. In other words, 
approximately half of the world s small visible supply is now in the 


10 


VALORIZATION OF COFFEE. 


control of the valorization committee, composed of the strongest arid 
most powerful coffee men and their allies and the financiers back of 
them. The mere suggestion of this fact must make it apparent how 
thoroughly at the mercy of this valorization committee is the price 
of our coffee. Add to this condition the fact that valorization has 
still more than seven years to run, with continual increase of con- 
sumption and no prospect for any large increase m production—at 
least within seven years, as it takes six full years for new trees, if any 
were planted immediately, to bear any substantial amount of coffee— 
and the danger and iniquity of the situation and the power of the 
valorization committee appalls. 

I have said that instead of the valorization committee controlling 
5,100,000 bags, which is the official showing to-da}q they probably 
control nearer 6,000,000 bags. I base that conclusion on the following 
state of facts: Crossman & Sielcken, of New York City, the American 
agents of the valorization committee, and even the Brazilian Govern¬ 
ment, in answer to a direct official inquiry properly made, positively re¬ 
fuse to say to whom the April, 1911, sales of valorized coffee were made. 
The trade, up to the present time, can discover no evidence that any 
substantial amount of it has been withdrawn from the New York 
Dock Cods warehouses, or other warehouses, for consumption. Out¬ 
side of a few small lots to interior roasters and jobbers, there is no in¬ 
formation available, or even circumstantial evidence, that any of this 
coffee has really gone out of their hands. Moreover, there has come 
to light recently what the trade knows as a ‘‘restrictive contract/’ 
namely, a contract used by these valorization agents in selling coffee 
which forbids the coffee purchased to be used in filling contracts on 
the coffee exchange. This is rather a subtle scheme, particularly 
inasmuch as these restrictive sales are made at a fraction under the 
exchange prices. At first blush it would appear, therefore, that this 
was entirely legitimate and even a process beneficial to the general 
consuming public. However, when we recall that the present price is 
partially an artificial one, based on the holding up and holding back 
by these same people of one-half of the world’s visible supply of 
coffee, it will be seen that it amounts to nothing more than fractional 
underselling in small quantities under their own artificially enhanced 
and created price, with the very purpose of not breaking that artificial 
price. 

The members of the committee, and the financiers for whom they 
are agents, are certainly day bv day and year by year restraining 
trade in coffee by holding out these 6,000,000 bags. Moreover, the 
very essence of this plan, in which they engaged and are engaging was 
to valorize or cause an artificial, or fixed, or made price on coffee, 
higher than the natural or ordinary open-market price. 

Again, the committee and those in control of the coffee are not even 
true to their trust so far as the State of Sao Paulo is concerned, be¬ 
cause their minister of finance cabled the Brazilian ambassador here, 
at the time of the attempt to place a proposed import duty on coffee 
by Congress in 1909, to the effect that all of the coffee could be sold 
when it had reached the priqe of 47 francs per bag of 50 kilos, or the 
equivalent 56.4 francs per bag of 60 kilos. Instead of that, they are 
now holding the coffee at a price far above that, the last sales, in 
April, having been made at about 73 to 75 francs per bag of 60 kilos. 


VALORIZATION OF COFFEE. 


11 


The only good points, from the standpoint of the American public, 
in the plan are possibly the two following: 

(1) It has steadied the market and prevented useless, reckless 
speculation. Whether the steadying and fixing of the market is a 
good thing is a question. The theory is, in this country, that the 
market should be open and unsteady, and inviting to free and open 
competition; so this may be a questionable benfit after all. 

(2) It has probably improved the average quality of coffee, in that 
the restriction on planting made them cultivate more carefully. 

The net results of the valorization appear to be: 

(1) Large profits to the financiers. 

(2) Some net profit to the planters. 

(3) None to the State; rather a loss because of the amount of 
revenue, the collection of which is called for and diverted, and, while 
the State’s coffee is going up in price, yet it is probable that the 
interest, storage, and commission charges will eat that up before the 
end of the valorization scheme, January 1, 1919. 

(4) The addition and piling of all of these costs and advances on 
the coffee consumers. 

(5) The restraint in trade caused b}^ the carrying out of the plan. 

(6) The enhancement of the price of the great article of common 
use imported chiefly from Brazil—coffee. 

There has been substantial restraint, and attempts to enhance, and 
enhancement of the price in this matter by the following: 

(1) The curtailment of production by stopping the additional 
planting and cultivation to keep pace with an increasing demand. 
This situation still exists. 

(2) By systematically engaging in a campaign at big expense to 
make an increased demand in the face of a restricted production. 

(3) By restraining exportation from Brazil under a heavy export 
tax, levied on the u exigency” or demands of the bankers who made 
the loan that made the scheme possible. 

(4) By restraining exportation from Brazil by a levy of extra tax 
on all exports over a given quantity. 

(5) By holding the valorization coffee out of the open market. 

(6) By holding coffee even when way above the declared Govern¬ 
ment maximum price to be demanded of 47 francs per 50 kilo, or 
56.4 francs per 60-kilo bag. The last sales were at 73 francs and 75 
francs per 60 kilos. 

And each of these things have been deliberately and designedly 
done, according to the official reports, with the one actuating motive 
and intent present from the very origin of the idea, namely, to in¬ 
crease the price of an article which some one or more of them were 
engaged in importing, to wit, coffee, in direct conflict with and in 
violation of the statutes of the United States, to wit, section 73 of 
the Wilson Act, elsewhere quoted—and this the law in the Nation 
which takes 80 to 85 per cent of their entire product, which they 
well knew, or should have known. 

This purpose and these facts and this law the bankers well knew 
or should have known when they demanded certain restraints to 
make the intended result of increased price more certain. 

In this declared purpose the bankers and their agents aided and 
abetted and participated when they took the bonds and made the 


12 


VALORIZATION OF COFFEE. 


loans to carry out this purpose to increase the price of this commodity 
of such common use in the United States that the people of the 
United States absorb 40 per cent of the entire world's supply. 

In this violation of the law certain brokers joined in taking and 
holding certain portions of the stock of this coffee, for the purpose 
of assisting in the consummation of this plan to increase the price of 
an article in which they were engaged in importing. 

Of a violation of this law the members of the so-called valorization 
committee, who are among the best-posted coffee men in the world, 
were and are guilty, but of them we can deal only with the American 
member, Mr. Herman Sielcken, who is now and has been since before 
this investigation was begun living out of the United States, to wit, 
on his estates in Baden-Baden. 

When this investigation had developed far enough to find that 
one American citizen was a member of this committee, and had 
been since its organization, the question presented itself as to how 
he could be reached so as to stop his activities, and through him 
those of the committee so far as it dealt with the imports to the 
United States, when he did not appear as a party to the original 
contract between Sao Paulo and the other States and the bankers. 
This is not now a problem, because it appears that Mr. Herman 
Sielcken, of New York, the American member of the committee, 
appeared and acted for the National City Bank, as its “ agent duly 
authorized in the city of London," representing it “for the purposes 
of this agreement " at the making of the first “definitive" agreement 
for the loan of the £3,000,000 on the 14th of December, 1906, and 
personally signed the said definitive agreement as the representative 
of said bank, and his firm also actively bought valorized coffee for 
Sao Paulo. We have him therefore present as the active tort feasor 
at the outset of the plan, and he can not escape the penalty of his 
act and subsequent acts in the plan by saying he committed the mis¬ 
demeanor as the agent of another. 

But he is more than agent, if that were necessary, which I believe 
it is not. He is the trustee, who has accepted the trusteeship in this 
country of the illegal plan and agreement and its subsequent or 
resulting bonding scheme, and all the demands for security made in 
the way of restricted exports and planting and cultivation with its 
resulting restraint upon imports into the United States and the con¬ 
sequent enhancement of prices upon such imports. He is the ille¬ 
gitimate trustee of the operations in this country of the illegal agree¬ 
ment or its results which are violative of section 73 of the act of 
August 27, 1894, v and of which agreement the original contracting 
parties remain only the cestues qui trustants, while Mr. Sielcken and 
the other six committee members act, do, carry on, and carry out, a 
plan in violation both of the act of July 2, 1890, and particularly of 
section 73 of the act of August 27, 1894, “to increase the price of 
imports" in which they deal, 80 or 85 per cent of which are to come 
to this country. Therefore said acts, as criminal statutes can and do 
reach him in his accepted, adopted, and acting active capacity, as 
he must stand sponsor for his own torts or misdemeanors. He can 
not escape by setting up his representative capacity either as agent 
or as trustee ex malificio. If that were so, what a splendid opening 
for international criminal schemes through trustees and agents 
H is acts must stand by themselves as misdemeanors, no matter 


VALORIZATION OF COFFEE. 


13 


who inspired, or in reliance upon or through what contract they were 
brought into being. Were it otherwise, a criminal would always 
plead representative capacity, “Let me off and take my principals.” 
Criminal law answers: “We will take and punish both principal and 
agent.” Criminal laws are for deterrents as well as punishments. 
To take both principal and agent is the greater deterrent. 

Section 76 of the act of August 27, 1894, provides— 

That any property owned under any contract or by any combination, or pursuant 
to any conspiracy (and being the subject thereof) mentioned in section 73 of this act, 
and being in the course of transportation from one State to another, * * * shall 
be forfeited to the United States, and may be seized and condemned by like pro¬ 
ceedings as those provided by law for the forfeiture, seizure, and condemnation of 
property imported into the United States contrary to law. 

This is identical with section 6 of the Sherman Act. I have always 
wondered why section 6 has been invoked so little. It is my belief 
that when that act was framed, section 6 was designed to be the real 
effective deterrent, particularly to continuing violations. Moreover, 
its employment makes the Government’s actions at the expense of 
the offenders, as they should be, and not a tax upon the people. 

In this case I would recommend that, as a part of the proceedings, 
instructions be given to institute seizure and condemnation proceed¬ 
ings on the first valorization coffee to move in interstate commerce. 
I do not believe it would require but one such seizure to enable the Gov¬ 
ernment to make terms as to the future handling and disposition of 
valorization coffee. It may be urged that such a proceeding might 
make international complications. I have thought of that. Suppose 
the situation was reversed and it was a commodity, a mere com¬ 
mercial trade commodity, of the United States that was being moved 
intraterritorially in some foreign country, in violation of its plain 
statutes. Is there any doubt what the upshot would be ? I conceive 
not. The property would be seized at once. And what is more, the 
respect for the laws of other nations, particularly intraterritorially, 
which the comity of nations demands be observed, would leave the 
injured nation without either legal, equitable, or even moral grounds 
of complaint. I believe that I can safely make that assertion, even 
though I am not versed in international law. 

Moreover, the Government of Sao Paulo, through the Brazilian 
Government, has officially disclaimed further interest in the valoriza¬ 
tion operations. In an official message to the secretary of the Bra¬ 
zilian embassy at Washington, sent for the purpose of influencing the 
official actions of the Congress of the United States, and sent through 
the Brazilian Government’s official channels, the minister of finance 
of Sao Paulo, under date of April 1, 1909, said: 

The Government of Sao Paulo is no longer engaged in any valorization operations 
and has ceased entirely with its intervention in the market with the signing of the 
15.000,000 pounds sterling loan. All the coffee stock belonging to the State has been 
delivered to the committee of bankers authorized to sell it. The committee is obliged 
to sell, in accordance with the contract, at the market price and to the amount of 500,000 
bags during the year 1909-10, 600,000 bags during the year 1910-11, and 700,000 
bags during the year 1912-13, and an equal amount in the following years. The 
committee can, however, sell all or any coffee as soon as the price will reach 47 francs 

per 50 kilos of good average. . 

There is therefore no action of this Government to advance the price of coitee, as its 
whole stock can be sold within a few years at the market price. On the contrary, it 
limits the rise of the market to the maximum price of 47 francs (equivalent to 56.4 francs 
per ordinary bag of 60 kilos), by which all stock can be sold at once, that price being 
hardly sufficient to cover the cost of production in the finest coffee zones of this State. 


14 


VALORIZATION OF COFFEE. 


And then, in order that there might be no question at all as to the 
State’s disinterestedness, he proceeds with his disclaimer by putting 
the burden of causing the export duty to be levied by his State on 
coffee upon the bankers who financed the scheme, as follows: 

The taxes collected by this State were given in guaranty of the loan and will be 
reduced, once the loan is redeemed. The tax of 20 per cent ad valorem on the export 
beyond the amount marked by law (9,000,000, 9,500,000, and 10,000,000 bags for 
1908-9, 1909-10, and 1910-11, respectively) was created by exigency of the bankers, 
but the Government is negotiating with them to replace it by another more acceptable 
to the markets. 

Under such circumstances would it not be an act of international 
kindness for the United States to help Sao Paulo to remove this 
millstone of surtax, export tax, and added ad valorem export tax ? 
And particularly when this same minister of finance adopts as his 
own this language: 

To suppress coffee exports is to profoundly injure the whole of Brazil, threatening 
its very existence. (Report of Sept. 30, 1910.) 

Their acts thus disowned as the acts of agents of the Government? 
the committee and the financiers must face alone the onus of holding 
the valorization coffee out of the market while it has gone up 6 cents 
per pound, and while it has gone far above the 47 or 56.4 francs per bag, 
which the minister of the Government who has had the matter in 
charge says is the top limit of price desired by the Government for 
its product. They must stand as having deliberately and willfully 
conspired to enhance the price of this import and to restrain the trade 
in coffee by so doing. I can see neither justification, excuse, nor 
escape for them. Under the terms of their trusteeship contract, if 
they only sold the minimum amount of coffee per year there would 
still be one and one-lialf million bags on hand, the last six months of 
the term for which the last big loan runs. This is a clear indication 
that they were expected to sell additional amounts as soon as the 
price reached the desired level and tends to corroborate the minister’s 
message in that respect. It is true that they have, during the current 
year, apparently sold an extra 600,000 bags above the minimum, but 
so far as the market and trade in the United States are concerned not 
only the extra but also the obligatory sales might as well not have 
been made. The sales have all been made in secret, and practically 
none has been withdrawn for consumption, indicating as strongly as 
circumstances can that the pretended sales are not sales at all bona 
tides, but a mere bidding in of the coffee by the coffee committee, 
coffee people and their friends, to hold for a still higher squeeze. 
And what a good time it was to have so bid it in. The crop just mar¬ 
keted was millions of sacks short of the world’s consumption for the 
year, and though the prospects are for a good crop, to cap it all, for 
some reason, either through error or otherwise, there is no obligation 
on the committee to sell a single pound of valorized coffee the coming- 
year, or until June, 1913, so that instead of having done something 
for the market and the consumer these people on the inside have 
simply taken advantage of their position to buy some extra coffee 
which they can, within their powers, as indicated, by subsequent 
refusal to sell, boost still higher. 

^While there has also undoubtedly been substantial violations of 
the Sherman Act, the remedy thereunder is similar to the remedy 
under the Wilson Act. It seems to me that the whole plan consti- 


■ » 


VALORIZATION OF COFFEE. 15 

tutes a plain and complete offense against the latter statute. I 
therefore recommend that the proceedings be had primarily under 
section 73 of the act of August 27, 1894, and also under section 76 of 
the same act. I firmly believe that only criminal proceedings will 
bring effective results in this case. 

A failure on the part of this department to prosecute this matter 
to the utmost would rightfully bring down upon it the censure of the 
people, for whom it constitutes the machinery which must stand 
between them and such unconscionable, open, high-handed, con¬ 
tinuous, and bold violation of law for the express and only purpose, 
from the very conception and inception of the scheme, of gouging 
the consuming public of this country to the extent of all the numerous 
commissions and charges which the scheme involved, to the profit 
of the high financiers of international operation, plus whatever 
profit which was to come to this foreign nation and its people, at the 
expense of the American consuming public, who are the known cus¬ 
tomers of from 80 to 85 per cent of their entire product. Such a lack 
of patriotism alone should be considered little short of treasonable 
conduct, but when it is done in the face of and in violation of plain 
statutes it deserves and should meet the exact and full penalty which 
the law provides and prescribes. The fact of the standing of the 
offending parties is nothing that this department can consider. 
The law is plain. The intent is plain—there has been but one 
purpose from the beginning. The results are apparent. The future 
results, unless checked, will be appalling. 

If any steps taken bring on negotiations with the Brazilian States, 
the persons who are conducting them shoidd under no circumstances 
forget to have the removal of planting restrictions in mind, as a part 
of the remedy desired, so that the increase of area may again at least 
begin to grow with the continuing increase in consumption. Even 
then the situation on that point will be very bad before the remedy 
can become effective because of the six-year term required for coffee 
trees to come into fruition. The urgency of the promptest kind of 
action is apparent. 

Respectfully submitted. 

Wm. T. Chantland, 

Special Assistant to the Attorney General. 

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